Deck 8: Liabilities and Stockholders Equity

Question 1

During the first year of operations,a company granted warranties on its products.The estimated cost of the product warranty liability at the end of the year is $12,750.The product warranty expense of $12,750 should be recorded in the year the related product sale is made.

Answer 1

True

Question 2

FICA tax is a payroll tax that is paid by both the employee and the employer.

Answer 2

True

Question 3

The total earnings of an employee for a payroll period is referred to as gross pay.

Answer 3

True

Question 4

In order to record a contingent liability,the liability must be probable and reasonably estimated.

Question 5

FICA tax is a payroll tax that is paid only by employers.

Question 6

Federal unemployment compensation taxes that are collected by the federal government are not paid directly to the unemployed but are allocated among the states for use in state programs.

Question 7

If prior to the last weekly payroll period of the calendar year,the cumulative earnings for an employee are $75,200,earnings subject to social security tax are $106,800,and the tax rate is 7.5%,the employer's social security tax on the $800 gross earnings paid on the last day of the year is $60.

Question 8

During the first year of operations,employees earned vacation pay of $50,000.The vacations will be taken during the second year.The vacation pay expense should be recorded in the first year of operations.

Question 9

Most employers are required to withhold a portion of the earnings of each employee for FICA tax.

Question 10

Obligations that depend on future events and are based on past transactions are contingent liabilities.

Question 11

Federal unemployment compensation tax becomes an employer's liability at the time the employee is paid.

Question 12

Obligations that depend on past events and that are based on future transactions are contingent liabilities.

Question 13

Federal unemployment compensation tax is a tax that is paid only by employers.

Question 14

Medicare taxes are withheld from an employee's pay only until the employee has earned
a specific amount each year.

Question 15

Most employers are required to withhold federal unemployment taxes from employee earnings.

Question 16

For proper matching of revenues and expenses,the estimated cost of fringe benefits must be recognized as an expense of the period during which the employee earns the benefits.

Question 17

Medicare taxes are paid by both the employee and the employer.

Question 18

The total earnings of an employee for a payroll period is referred to as the net pay.

Question 19

FICA tax becomes a liability to the federal government at the time the employees are paid.

Question 20

Liabilities that are due and payable beyond one year or paid out of noncurrent assets are termed long-term liabilities.

Question 21

If 50,000 shares are authorized,37,000 shares are issued,and 2,000 shares are reacquired,the number of outstanding shares is 35,000.

Question 22

The main source of paid-in-capital is from issuing stock.

Question 23

For accounting purposes,stated value is treated the same way as par value.

Question 24

When a corporation issues bonds,it executes a contract with the bondholders known as a bond indenture.

Question 25

A bond is simply a form of an interest-bearing note.

Question 26

The prices of bonds are quoted as a percentage of the bonds' face value.

Question 27

If the market rate of interest is 9% and a corporation's bonds bear interest at 7%,the bonds will sell at a premium.

Question 28

When a corporation issues bonds,it executes a contract with the bondholders known as a bond debenture.

Question 29

Paid-in capital and retained earnings are the two major categories of stockholders' equity for a corporation.

Question 30

The amount of capital paid in by the stockholders of the corporation is called legal capital.

Question 31

The par value of common stock is rarely equal to its market value on the date the stock is issued.

Question 32

If 20,000 shares are authorized,15,000 shares are issued,and 500 shares are reacquired,the number of outstanding shares is 19,500.

Question 33

Bonds are sold at face value when the contract rate is equal to the market rate of interest.

Question 34

The issuance of common stock affects both paid-in capital and retained earnings.

Question 35

Preferred stockholders must receive their current-year dividends before the common stockholders can receive any dividends.

Question 36

If the market rate of interest is 8% and a corporation's bonds bear interest at 7%,the bonds will sell at a premium.

Question 37

If the market rate of interest is 6% and a corporation's bonds bear interest at 7%,the bonds will sell at a discount.

Question 38

The two main sources of stockholders' equity are investments contributed by stockholders and net income retained in the business.

Question 39

When the market rate of interest is less than the contract rate for a bond,the bond will sell for a discount.

Question 40

If the market rate of interest is 7% and a corporation's bonds bear interest at 8%,the bonds will sell at a premium.

Question 41

If 20,000 shares are authorized,14,000 shares are issued,and 500 shares are held as treasury stock,a cash dividend of $1 per share would amount to $13,500.

Question 42

Bonds payable due in 2020 are reported on the balance sheet as long-term liabilities.

Question 43

A corporation has 10,000 shares of $100 par value stock outstanding.If the corporation issues a 4-for-1 stock split,the number of shares outstanding after the split will be 40,000.

Question 44

One of the prerequisites required to pay a cash dividend is formal action by the board of directors.

Question 45

One of the prerequisites usually required to pay a cash dividend is sufficient retained earnings.

Question 46

The declaration and issuance of a stock dividend does NOT affect the total amount of a corporation's assets,liabilities,or stockholders' equity.

Question 47

Cash dividends are not paid on shares of treasury stock.

Question 48

Before a stock dividend can be declared or paid,there must be sufficient cash.

Question 49

Treasury stock is a contra-equity account.

Question 50

A corporation has 10,000 shares of $100 par value stock outstanding.If the corporation issues a 5-for-1 stock split,the number of shares outstanding after the split will be 2,000.

Question 51

The declaration of a cash dividend decreases a corporation's stockholders' equity and increases its liabilities.

Question 52

A 10% stock dividend will increase the number of shares outstanding and the book value per share.

Question 53

If 50,000 shares are authorized,35,000 shares are issued,and 2,000 shares are reacquired,the number of outstanding shares is 33,000.

Question 54

The primary purpose of a stock split is to reduce the number of shares outstanding in order to encourage more investors to enter the market for the company's shares.

Question 55

A corporation has 10,000 shares of $100 par value stock outstanding that has a current market value of $160.If the corporation issues a 4-for-1 stock split,the market value of the stock will fall to approximately $32.

Question 56

If 50,000 shares are authorized,35,000 shares are issued,and 1,000 shares are reacquired,the number of outstanding shares is 36,000.

Question 57

The reduction in the par or stated value of common stock,accompanied by the issuance of a proportionate number of additional shares,is called a stock split.

Question 58

The declaration of a cash dividend decreases a corporation's stockholders' equity and decreases its assets.

Question 59

A corporation has 10,000 shares of $25 par value stock outstanding that has a current market value of $100.If the corporation issues a 5-for-1 stock split,the market value of the stock will fall to approximately $20.

Question 60

The declaration of a stock dividend decreases a corporation's stockholders' equity and decreases its liabilities.

Question 61

An employee receives an hourly rate of $27,with time and a half for all hours worked
In excess of 40 during a week.Payroll data for the current week are as follows: hours worked,46;federal income tax withheld,$350;cumulative earnings for year prior to current week,$99,700;social security tax rate,6.0% on maximum of $106,800;and Medicare tax rate,1.5% on all earnings.What is the gross pay for the employee?

A)$798.85
B)$873.77
C)$1,242.00
D)$1,323.00

Question 62

A current liability is a debt that can reasonably be expected to be paid

A)between 6 months and 18 months.
B)out of currently recognized revenues.
C)within one year.
D)out of cash currently on hand.

Question 63

Earnings per common share is one factor that influences the decision to use debt financing or equity financing.

Question 64

The total earnings of an employee for a payroll period are referred to as

A)take-home pay.
B)pay net of taxes.
C)net pay.
D)gross pay.

Question 65

Which of the following is characteristic of deferred income tax payable?

A)Deferred income tax payable is often generated due to timing differences.
B)Deferred income tax payable may be either a current or long-term liability
C)Deferred income tax payable represents the deferred payment of taxes to later years through tax planning techniques.
D)All of these are characteristics of deferred income tax payable.

Question 66

When are contingent liabilities required to be recorded?

A)When the liability is probable
B)When the amount is reasonably estimable
C)When the liability becomes legally enforceable
D)Both the liability must be probable and the amount must be reasonably estimable before the contingent liability is recorded.

Question 67

An employee receives an hourly rate of $30,with time and a half for all hours worked in excess of 40 during a week.Payroll data for the current week are as follows: hours worked,46;federal income tax withheld,$300;cumulative earnings for year prior to current week,$90,700;social security tax rate,6.0% on maximum of $106,800;and Medicare tax rate,1.5% on all earnings.What is the net pay for the employee?

A)$1,147.95
B)$1,059.75
C)$1,470.00
D)$1,359.75

Question 68

On June 5 Glover Co.issued a $60,000,6%,120-day note payable to Jones Co.How much will Glover Co.have to pay at maturity?

A)$63,600
B)$58,800
C)$60,000
D)$61,200

Question 69

Income tax based on taxable income may differ from the income tax based on "Income before Taxes" on the income statement.Which of the following could be a reason for this difference?

A)A business may use accelerated depreciation for tax reporting and straight-line for financial reporting purposes.
B)Tax payments may not equal the tax due.
C)Taxable income is based on Generally Accepted Accounting Principles.
D)All of these could be reasons for the difference.

Question 70

The cost of a product warranty should be included as an expense in the

A)period the cash is collected for a product sold on account.
B)future period when the cost of repairing the product is paid.
C)period of the sale of the product.
D)future period when the product is repaired or replaced.

Question 71

Current liabilities are

A)due but not receivable for more than one year.
B)due but not payable for more than one year.
C)due and receivable within one year.
D)due and payable within one year.

Question 72

As interest is recorded on an interest-bearing note,the Interest Expense account is

A)decreased;the Interest Payable account is increased.
B)increased;the Interest Payable account is increased.
C)increased;the Notes Payable account is decreased.
D)increased;the Notes Payable account is increased.

Question 73

If paid-in capital in excess of par--preferred stock is $80,000,preferred stock is $500,000,paid-in capital in excess of par--common stock is $50,000,common stock is $1,000,000,and retained earnings is $230,000,the total stockholders' equity is $1,860,000.

Question 74

Where is interest expense listed on the income statement?

A)Other expense section
B)Cost of merchandise sold
C)Operating expenses
D)Interest expense is on the balance sheet,not the income statement.

Question 75

Current liabilities are

A)due and receivable within one year.
B)due and to be paid out of current assets within one year.
C)due but not payable for more than one year.
D)payable if a possible subsequent event occurs.

Question 76

An employee receives an hourly rate of $27,with time and a half for all hours worked in excess of 40 during a week.Payroll data for the current week are as follows: hours worked,46;federal income tax withheld,$350;cumulative earnings for year prior to current week,$99,700;social security tax rate,6.0% on maximum of $106,800;and Medicare tax rate,1.5% on all earnings.What is the net pay for the employee?

A)$798.85
B)$873.77
C)$953.16
D)$1,223.77

Question 77

Which of the following would most likely be classified as a current liability?

A)Two-year notes payable
B)Bonds payable
C)Mortgage payable
D)Unearned rent

Question 78

Gross earnings for a payroll period less payroll deductions are referred to as

A)overtime pay.
B)bonus pay.
C)gross pay.
D)net pay.

Question 79

Prior to the last weekly payroll period of the calendar year,the cumulative earnings of employees A and B are $106,150 and $91,000,respectively.Their earnings for the last completed payroll period of the year are $850 each.The amount of earnings subject to social security tax at 6% is $106,800.All earnings are subject to Medicare tax of 1.5%.Assuming that the payroll will be paid on December 29,what will be the employer's total FICA tax for this payroll period on the two salary amounts of $850 each?

A)$127.50
B)$115.50
C)$76.50
D)$63.75

Question 80

What options does a business have when financing operations?

A)Debt financing
B)Equity financing
C)Asset financing
D)Both debt financing and equity financing